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On October 27, 2016, the Department of Labor (“DOL”) published a set of frequently asked questions (“FAQs”) about the Conflict of Interest Rule, otherwise known as the DOL Fiduciary Rule. The 34 FAQs are based in part on input the DOL received from the financial services industry. With the release of the current FAQs, as well as others expected in the coming months, the DOL intends to clarify parts of the rule and help the industry make decisions that benefit retirement investors.
The DOL presented the questions in several categories, the majority of which relate to different aspects of the Best Interest Contract Exemption (“BIC Exemption”). Other questions address compliance dates and other exemptions, with particular focus on the Principal Transaction Exemption and Prohibited Transaction Exemption (“PTE”) 84-24, which relates to sales in fixed annuities. This alert highlights issues covered by the first batch of FAQs.
The DOL Fiduciary Rule will be implemented on April 10, 2017, and the DOL expects broker-dealer firms to comply with the BIC Exemption for the “Transition Period” prior to January 1, 2018. While firms will not be responsible for the contract and disclosure requirements of the BIC Exemption during this period, they still must do the following:
One question addresses compliance dates for changes to currently existing PTEs 75-1, 77-4, 80-83, 83-1, 84-24, and 86-128, which in most cases involve adding compliance to the Impartial Conduct Standards. Firms must comply with these revised PTEs as of April 10, 2017.
Best Interest Contract Exemption
Several questions sought clarification of the requirements regarding the BIC Exemption, particularly in relation to advisers that receive a fixed percentage (fee) based on assets under management:
The DOL indicated that firms may consider the following regarding compensation under the BIC Exemption:
The DOL made the following comments regarding grandfathering of compensation for investments made prior to April 10, 2017:
This exemption allows for certain compensation for fixed annuities in retirement plans and IRAs. The DOL issued the following comments:
Principal Transaction Exemption
The DOL answers a few questions regarding the Principal Transaction Exemption, which covers principal transactions in certain assets between investment fiduciaries and employee benefit plans and IRAs. The exemption allows an adviser and firm to engage in principal transactions and riskless principal transactions involving certain investments. The DOL made the following comments:
The DOL has also provided some guidance to insurance marketing organizations and insurance-only agents with regard to operating pursuant to the DOL Fiduciary Rule.
The DOL expects to release additional sets of FAQs in the future. Additionally, the DOL states it will continue to work with firms and advisers to help them comply with the rule.
The full text of the 34 FAQs can be found on the DOL website here.
For More Information
For more information, please contact your ACA consultant, or Dee Stafford in the Los Angeles office at (310) 322-8840.